by Bill O’Grady

Since last summer, oil prices have suffered a precipitous decline.  The weakness is mostly due to supply and demand factors; however, because oil is a market with an active cartel, the decision by the cartel leader, Saudi Arabia, to allow prices to decline is also a key factor in price weakness.

This isn’t the first time the kingdom has fostered a price breakdown.  There were two other episodes in which the Saudis led oil prices lower.  In 1986 and 1998, the kingdom boosted production and allowed prices to decline in a bid to maintain its market share.

In this report, we will focus solely on the geopolitics of the 1986 event.  The analysis will begin with the basic economics of oil and cartels.  From there, we will detail the history of the kingdom’s decision to abandon OPEC’s price targets in 1986 and the geopolitical fallout that emerged in the coming years.  We will compare and contrast the 1986 situation to the present situation.  As always, we will conclude with potential market ramifications.

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by Bill O’Grady

On New Year’s Eve, King Abdullah of Saudi Arabia was hospitalized with pneumonia.  According to reports, he is taking visitors and will probably survive this illness.  On the other hand, the king is at least 90 years old and is becoming increasingly frail.

In light of his advanced age and declining health, an analysis of royal succession in Saudi Arabia is in order.  This process is becoming increasingly uncertain.  Unlike many European royal families, Saudi successions are not based on primogeniture; instead of passing from the king to his eldest son, it passes to a brother.  Due to the advancing age of the second generation of princes, this process is becoming increasingly problematic.

We will begin this report with a history of Saudi kings.  Following this history is an examination of the current Saudi succession, focusing on the Crown Prince and who remains as potential kings among the “second generation” of the Saudi Royal Family.  In this context, we will analyze the challenges facing the kingdom and how the succession issue will likely complicate the manner in which these issues are resolved.  As always, we will conclude with potential market ramifications.

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by Bill O’Grady

In our 2015 Geopolitical Outlook, one of the risks we discussed was the rise of populism.  In this week’s report, we will focus on European populism.  The recent attack on the employees of Charlie Hebdo in France makes this a timely topic.

In this report, we will define populism, examine why populism has developed in the West, note the particular characteristics of European populism and identify the effects it could have on general geopolitics in the future.  As always, we will conclude with potential market ramifications.

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by Bill O’Grady

On Wednesday, December 17, 2014, President Obama surprised the country by announcing a prisoner exchange and negotiations to begin establishing diplomatic relations with Cuba.  Given that the Eisenhower administration broke off diplomatic relations with Cuba in January 1961, even considering resuming relations is a major change in policy.  In this report, we will discuss the importance of Cuba to the geopolitics of the U.S and offer a short history of the island along with a summation of the lessons of that history.  We will analyze the limits of the current thaw and why this attempt at rapprochement is occurring now.  As always, we will conclude with potential market ramifications.

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by Bill O’Grady

As is our custom, we close out the current year with our outlook for the next one.  This report is less a series of predictions as it is a list of potential geopolitical issues that we believe will dominate the international situation in the upcoming year.  It is not designed to be exhaustive; instead, it focuses on the “big picture” conditions that we believe will affect policy and markets going forward.  They are listed in order of importance.

Issue #1: America’s Strategic Drift

Issue #2: The Collapse in Oil Prices

Issue #3: The Rise of the Populists

Issue #4: Taiwan

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